Cut, Cap, and Balance: The Republican's Latest Economic "Plan"

With a debt deal going absolutely nowhere and the August 2nd deadline getting ever closer, the Republican Study Committee (a caucus of House Republicans that push conservative economic principles) has announced that they will push for a brand new economic plan: an amendment to the constitution called "cut, cap, and balance." 

What is Cut, Cap, and Balance?
According to the Study Committee,

1. Cut – Immediate spending cuts to reduce the deficit by half next year.  According to March projections from the Congressional Budget Office, this would require spending cuts of approximately $380 billion in the 2012 fiscal year. 
2.  Cap – Statutory, enforceable caps that bring spending into line with average revenues at 18% of GDP.  Reps. Kingston and Mack have each introduced legislation that would ratchet total federal spending down to 18% of GDP over the course of 5-6 years.  
3. Balance – House and Senate passage of a Balanced Budget Amendment to the Constitution that includes a spending cap at 18% of GDP and a supermajority requirement for tax increases.  The House Judiciary Committee and all 47 GOP Senators have endorsed Balanced Budget Amendments along these lines. 

Andrew Stiles at the National Review provides an even more succinct explanation:

Under the “Cut, Cap, and Balance” legislation, Congress would raise the debt ceiling by $2.5 trillion (the amount requested by President Obama to get him through the 2012 election). However, that increase would go into effect only if both houses of Congress pass — with two-thirds majorities — a balanced-budget amendment (BBA) to the Constitution and send it to the states for ratification. In addition, the plan calls for significant spending cuts to next year’s budget — about $111 billion — and firm caps on federal spending at 18.5 percent of GDP by the end of the decade. According to White House data, given current trends, spending will exceed 25 percent of GDP this year and will hover around 22.5 percent for the next five years. (The legislation will make no immediate changes to Medicare, Medicaid, or Social Security.) 

The plan sounds perfect in theory. Let's make sure that the government lives within its means by limiting their ability to spend and tax! But the Republican plan is, sadly, complete hogwash. 

Analysis: The Negatives

Let's break down why this plan would do little to assist our ailing economy. In fact, the Republican's plan to cut, cap, and balance could make our economic problems even more severe:

1. Firstly, and practically speaking, there is no way that such an amendment could ever be added to the Constitution. The numbers simply do not add up. As a recap, the amendment would have to pass both the House and the Senate with a 2/3rds majority, which means that 67 senators as well as 287 members of the House would have to vote in favor. This is extremely improbable seeing that there are currently only 47 Republican Senators and 240 Republican members of the House. Such a controversial and likely straight party-line vote would make it all but impossible for Republicans to draw the bipartisan support they would need to pass it. 

2. The plan would significantly handicap the country's ability to deal with recessions and economic collapses. Cut, cap, and balance calls for a rule to be put in place that would require a supermajority (that is, 2/3rds of Congress) to pass any form of tax increase. Furthermore, they would make it impossible for government to spend any money in the form of an economic stimulus or in times of potential economic catastrophe. This could have terrifying ramifications. Let me start with an example. I am not a politician, and therefore am able to say something that almost no politician (at least Republican will ever say): Say what you want about the $700 billion that went to bailing out the banks, but it was an absolutely necessary infusion of cash to a system that could no longer prop itself up. Those emergency funds temporarily staved off an even worse recession until the government could figure out how to create more wide-ranging and long-term economic measures. If cut, cap, and balance had been in place during 2008, President Obama would not have the opportunity to grant the banks that money because there would have been a law in place that severely weakened his ability to react to economic calamities. 

3. My third point goes hand in hand with the previous idea. If the economy began to tumble (which it would if regulations were eliminated to create a marketplace that would be determined largely by greed and the government was unable to spend the necessary funds like TARP to keep the economy afloat), taxes would almost certainly have to be increased to make up for the fact that the government would be unable to spend money due to cut, cap, and balance. But tax increases would also be an impossible feat, seeing that Republicans will never vote for any form of tax increase or tax loophole elimination and Democrats will never have a supermajority in either the House or the Senate. This puts the US government in a horrible and absolutely unworkable position in times of recession. Not only would they be unable to spend any emergency money, but they would be unable to raise that money through taxes. That does not sound like a plan for economic prosperity from me. Instead, it sounds like a plan for long-term economic depression. 

While Republican commentators are ecstatic that the bill will be introduced this week on the House floor, others are less thrilled. The Huffington Post explains,

Economists say a balanced-budget requirement would tie the federal government's hands during a recession, when tax revenues plummet and welfare costs rise, by forcing it to slash spending or raise taxes.

Seiver, a professor of finance at San Diego State. "It's exactly the opposite of what intelligent fiscal policy should do."

Tax revenues tend to decline in times of economic downturns. Making it harder to raise taxes during recessionary periods in which tax revenues plummet would tie the federal government's hands. 

Scoring Political Points
I have a working thesis about this whole cut, cap, and balance business. Despite the minority of really uniformed Republican congressmen who truly don't understand the importance of raising the debt ceiling and the negative consequences that not increasing it could have on the economy, I really believe that most of these congressman do not actually believe what they are saying.

Hear me out: Cut, cap, and balance (and for that matter a number of Republican principles like "low taxes" and "minimal government regulation") sound fantastic in theory and only cause problems when you try to apply them practically. Republicans know that it will not ever be adopted, that they simply do not have the supermajorities needed for its passage. But it doesn't matter. They've seen the polls (a majority of Americans don't support raising the debt ceiling) and know that if they posture enough, America will see the Republican Party as "their party."

Republican strategists are giddy at the number of possibilities that Republicans have to come out politically victorious from debt ceiling discussions. Polls show that the public, and especially Republican voters, oppose a debt ceiling increase and favor some form of balanced budget amendment:

"This is a vote where ... the House Republican majority gets to align itself with the American public at large," said Kevin Madden, a Republican strategist and former Boehner spokesman. 

Conclusion
What could possibly force Republicans to raising the debt ceiling, something that inevitable must happen if the US wants to avoid economic default and something that has happened 39 times since 1980 (17 of those times being under President Reagan)? The failure of the cut, cap, and balance bill in achieving political success, coupled with an increasingly more frantic lobbying campaign by pro-business, Republican allies (like the Chamber of Commerce, who has admonished congressional Republicans for playing politics with the debt ceiling), could soften Republican opposition as August 2nd inches closer. Additionally, a steep drop in financial markets could also change their mind (In fact, Nancy Pelosi said in an interview that that may be the only way Republicans will actually understand that their actions have consequences).

The biggest problem for me with Republican's hard-right turn is their utter lack of ability to compromise (or even consider compromise a legitimate option). Here we are two weeks away from potentially defaulting on our debt and instead of proposing something that operates under the assumption that deficit reduction should be a shared sacrifice, Republicans have gone in the opposite direction, proposing a plan that Democrats and independents alike are sure to be distrustful of. 

Despite their best efforts to derail it, Republicans in Congress know that the debt ceiling will be raised, it's only a matter of time. But by fear mongering relentlessly and playing politics with an issue that's extremely unpopular among the general American populous, Republicans are winning. And sadly, that's all that will ever matter in Washington. 

Washington Post: Since 1980, the debt ceiling has been raised 39 times. It was raised 17 times under Ronald Reagan, four times under Bill Clinton and seven times under George W. Bush.